What Effect Will Donald Trump’s Presidency Have on the US Dollar?
So it happened, the most unlikely President in US history is on the verge of being inaugurated as US President. For investors surely the next question is what is the Donald Trump effect going to have on the US dollar? Well, initial signs in the business community at least are good. The Dow Jones has been on a stellar run since Trump was announced as the election winner, though it stopped just short of the magic 20000 mark, there’s little doubt in the business community that one of their guys at the helm will be great for business.
Whilst many will argue that the President’s personal effect on the economy is mild at best, Trump is seen as an outlier, though he still needs to garner much more significant support within his own party. So far most of his appointments have been from the business community and while many in the business community will see that as a positive, a lack of ground support from fellow Republican’s could spell major trouble for actually getting proposals through.
Here we will try to investigate by area the effect that Trump may have on the economy and markets;
- Trump effect on bonds – This is a key area that hasn’t really been addressed by any of Trump’s policy ideas, he’s yet to really say very much about investment and whether he’s likely to borrow. So this is the least known quantity of the “Trump effect”
- Trump effect on the economy – This again is something of a grey area, and will very much depend upon who you ask. Card carrying Trump supporters will insist that his ambition to tax cheap imports from the far east will stimulate productivity and manufacturing, he may have a harder time convincing the more libertarian parts of his party. Most Republican’s would favour the open market and letting globalisation play out as necessary.
However Trump’s stance is very different, many from the business community will struggle to back reforms that mean the average man in the street will have to pay higher prices if imports are taxed more significantly. Though this could be offset by an increase in domestic manufacturing and purchasing.
Though companies like those in the banking sector will be hoping that Trump follows through on ideals to lessen bureaucracy in the business world. Also companies around the oil industry will be delighted to see Rex Tillerson take a position in the cabinet. So much of America’s financial strength is built on oil, and this is a keen pick by the President-elect.
- Trump effect on the forex market – There’s little doubt that if the US insulates itself from the outside world then the trump effect on the US dollar is going to be significant, the sheer surprise of the Trump victory plunged the dollar, and his policies may not help it to recover quickly. Much is going to depend on the strength of future exports, but as the US generally holds a heavy trade deficit, going insular may become a real problem as other countries punish the US. There is also a potential issue that in oil Trump has backed the wrong horse. The world is gradually moving away from fossil fuels, and whilst providing a large chunk of American money the future is somewhat shaky. The world’s largest car manufacturers are all turning their attention to electric vehicles, which could mean disaster for oil.
Recent hikes in interest rates are a sign of growth, and many will hope that Trump will be able to come in and cut taxes and inject some money into infrastructure, this all being dependent that he can get his party to fall into line behind him. Though with a clear majority to push through what they want, a united Republican party could indeed make a huge difference to the US economy over the coming years.
While many will downplay the effect that a President can have on a financial system, Trump being the outlier has at least seemingly got the vote of business. Who will be keen on trying to secure tax cuts for corporations and see infrastructure investment as a way to try and push the economy forward. With a party united behind him and high-level advisors coming from big business it is certain to be a pro-business presidency. Though questions remain. If he follows through on some of his more extreme policies, such as deporting illegal immigrants and raising tariffs on imports, then what of the global trade that America makes so much of its money from? How will the trading partners of the United States take it?
While many have been keen to stick it to outgoing president Barack Obama on his lack of business intelligence, worldwide he’s been seen as a calm on a global storm that was created by the financial crisis that preceded his Presidency. Many will claim that it is simply unfair to blame the man who walked into a bad situation for not fixing it quickly enough. Globally America fared well in regards to recovery, though you may not get the same opinion depending on who you talk to. Obama had to force many policies through and did not enjoy the majority that Trump will have.
The great hope is that Trump harnesses such power and can “make America great again”. Certainly, his early meetings indicate that he wants to look to the future, holding a summit with the good and the great from the tech world and promising to be friendly to their cause. America has much to gain from the technology that those people create. It is home to the world’s innovation and Mr Trump must ensure that he develops an environment to foster the innovation and not stop it. Which may put him at odds with them, as many of them deal with manufacturing in the far east, which means his raising of tariffs may be item dependant rather than country dependant. Certainly, this group may either be his dearest friends or worst enemies, he’d do well to think carefully.